What Is a Principal Business Code? When Do I Need One?

How to Find and Use Your Principal Business Code

Every business must have a Principal Business Code (PBC) for filing federal business tax returns and for other U.S. government identification purposes. This six-digit number describes the types of products or services you sell, the industry you are in, and who you sell to.

The Principal Business Code of a business is based on the business activity that generates the most revenue. Primary business activity is determined through the relative share of production costs, or by capital investment.

How Principal Business Codes are Determined

Principal business codes are based on the North American Industry Classification System, NAICS. It includes technology and service industry codes and it was developed to use common business identifiers for the North American Free Trade Agreement (NAFTA) between the U.S., Canada, and Mexico. The identifiers in this system are updated every few years. The most recent is NAICS-2017.

How Is the Principal Business Code Used?

The IRS and the Census Bureau both use this code for statistical purposes. The IRS uses data on businesses to compare revenue, looking for businesses that have deviations from the average. The U.S. Census Bureau uses the PBC for collecting, analyzing, and publishing statistical data related to the U.S. business economy.

The Small Business Administration (SBA) has size standards for small businesses that determine whether the business qualifies as a “small business” for SBA loan guarantee purposes. The SBA connects principal business codes for each industry to the size of a business, with respect to either annual receipts or average employment.

For example, a builder of new single-family homes (NAICS 236115) would only qualify for SBA purposes if its annual sales were under $36.5 million.

How to Find Your Company’s Principal Business Code

Finding your company’s PBC is more difficult than it might appear. Some businesses clearly fit into a category, while others are not as apparent because it’s impossible to include every single business type in a classification system. You might have to search a while to come up with the “best fit” category.

The instructions for each business tax return include a schedule of the principal business codes (for example, in the Schedule C Instructions). You can also do a search for the right code on the NAICS website.

Begin by finding the general industry category or subcategory for your business. The industries are listed alphabetically. Retail, Wholesale, and Other Services industries are listed separately.

Within that general industry or category, find the description that best fits your business. It might be something unexpected. For example, if you own a coffee shop, look under the Retail category, your best fit would probably be “722515 - Snack and Nonalcoholic Beverage Bars.”

Sometimes, there isn’t a specific category of business that fits what you are doing. In this case, look for “All other” or non-specific categories within your general industry. For example, if you buy from a wholesaler and sell on the internet without specifically describing the types of products you sell, your category might be “454110 - Electronic shopping and mail-order houses.”

If you can’t find your specific business code in the Professional, Scientific, and Technical Services category, you might need to use “541990 - All other professional, scientific, & technical services.”

Your Principal Business Code on Your Business Tax Return

Your business’s principal business code is required on all business tax returns. If you have several sources of income within your business, enter the one that brings in the most revenue. If you have more than one business, you must enter a separate tax return for each one.

Filling Out Your Business Tax Return

For each type of business tax return, you will need to include the principal business description and the principal business code. For the description, include the category or subcategory and a few words of description.

For example:

A retail business operating a coffee shop

An administrative/support business operating as a carpet/upholstery cleaning service